Printing Money and Disaster

As I watch Glen Beck on television and radio personality Robert D. Raiford of the John Boy and Billy show struggle with economics and the different messages they get from economic “experts” I will struggled to explain in layman’s terms as best I can. What is really going on with all these economics and why the information is so different from one source to the next? I will do my best to make what is occurring as clear as possible.

Glen Beck struggles with the concept of the Federal Reserve and its Chairman Ben Bernanke printing trillions of dollars and the damage it will do to the economy. To understand his motivations it’s necessary to go back in time to the Great Depression and John Maynard Keynes.

During the 1920’s the stock market had a huge bubble as we all know that burst in 1929. Everyone blames the Great Depression on the stock market. But for Mr. Bernanke and thousands of economists we know that’s false. Government actions make a routine cyclical recession into a depression eventually leading to the rise of Hitler and WWII. The average unemployment rate under Roosevelt was a catastrophic 17.2%! One of the great if not the greatest tragedy in human existence only rivaled by the Black Death that swept the world several times in the 1340’s, killing 30 to 60% of Europeans as well as the 17th and 18th century plagues. Unlike the plague the depression and world war was totally man made catastrophes.

What the government did to make a regular cyclical recession into disaster was three huge blunders. On the federal level Hoover and Roosevelt raised taxes on the rich from 25% to 55% then Roosevelt to 75%. Sound familiar? Hoover increased federal spending 55% on various government projects like the Hoover Dam. Sound familiar? George Bush did the same with the wars, education and drug programs for seniors. Roosevelt further increased federal spending with his New Deal programs, increased business regulation and increased taxes on the wealthy. Sound familiar? Hoover raised tariffs 90%. Sound familiar? Obama was battling it out in the primaries bragging he could raise tariffs the fastest. It’s as if Bush and Obama are following the script of Hoover and Roosevelt to a T.

And one aspect that is lost in all this is the Federal Reserve did some truly asinine moves with the money supply. When the recession hit the Fed decreased the money supply 30%! Ouch! The exact opposite of what should have been done. Later in 1937 the Fed doubled the reserve requirement again throwing the country into depression. Monumental blunders that were not lost on Bernanke who studied the Great Depression during his college years. Bernanke is determined not to repeat the blunders of the past but is going in the opposite direction with a vengeance. And here is where economist differs in their approaches.
Bernanke and democrats in general are students of John Maynard Keynes the great arrogant economist during the 1930’s and 40’s. These Keynesian economists believe, although they will deny it, that government and people of superior intelligence such as themselves are equipped to deal with all the economic problems of the world. Super smart people like Bernie Madoff, Chuck Schumer, Michael Milken, Bernard Ebbers, Dennis Kozlowski, and Kenneth Lay from all walks of life feel entitled to rip off or impose government policies on people because they all have a underlying contempt for the unwashed masses. They feel superior and entitled to power and privilege.

John Maynard Keynes was fond of tapping his two fingers on the desk when conducting business hearings during WWII when contractors begged for government approval to raise prices to keep up with ramped inflation that was occurring on the black market of the time. The money supply was up 121% but inflation must have been a figment of these contractors’ imaginations. The finger tap on the desk literally represented his signal to his colleges that the head ant on top of the hill was signaling with his antennas to his comrades below that the shit was about to roll down hill. In other words he thought the person pleading was full of shit. This disrespect for working folks and their companies is blatantly apparent to readers of Keynes. And that is why so many politicians are drawn to Keynes. Central planning and a feeling of superiority and privilege over the stupid ignorant masses that are too stupid to see the big picture.

Radio personality Robert D. Raiford complains of Keynes “paradox of thrift.” Essentially this theory states that if we all save our money it may be personally good for us as individuals but is bad for the economy. Raiford, a highly educated man with a master’s degree, must have received some pretty bias economic education and like millions of Americans struggles with even the most basic understanding of the subject. The problem with Keynes is his theory like so many of his theories doesn’t hold up to reality. Increased savings go into banks. Banks are in the business to lend money in normal times. Someone will borrow the money and spend it. Second if everyone saved prices will drop. People would start to be attracted to lower prices and spend. Even the biggest savers in the world have a marginal propensity to consume. Raiford because of economic ignorance prevalent throughout society fails to connect the dots and discard this Keynesian myth.

And there you have it. A lot of economic disinformation is being taught and used by politicians, personalities and even our Federal Reserve Chairman. Mr. Keynes did a lot of good brilliant work on developing a national economic model overview referred to as the Gross Domestic Product. He is an economic giant and his concepts are taught but he was wrong on the paradox of thrift, liquidity trap and many of his depression era theories. Our Federal Chairman is a strong follower of these theories. God help us all.

Liquidity trap. What is it and why is it significant? A liquidity trap is a situation in monetary economics in which a country’s interest rate has been lowered nearly or equal to zero to avoid a recession. Sound familiar? Our Federal Funds rate or commonly referred to overnight rate of lending, is currently 0.20%. And no one is lending. The market is not stimulated. Banks are keeping assets in short term cash accounts and avoiding long term investments making the recession worse. Mr. Bernanke is reliving the same liquidity trap that Keynes experienced in the 1930’s. So Mr. Bernanke is telling all those who will listen to pump trillions into the economy to get the economy moving again. And there you have the well intentioned motive of Mr. Bernanke although like Keynes the well intentioned theories will prove to be a monumental disaster for the country.
Why are banks really holding out? Politically you could argue the dysfunctional nut jobs in Washington DC are destroying banking confidence with crazy bail outs, buy outs, insane tax policies, insane mark to market accounting rules and you would be partially correct. The politicians in Washington are a disaster. And it’s both parties. Both parties need to be retired to the ash heap of history along with the Whigs, Federalist and Bull Moose political parties. The Democrats and Republicans of today are completely and totally incompetent to do anything. The federal government should be frozen and stored away in some deep freezer only to be thawed out after the adults have cleaned up the mess they created. So yes the political situation is hurting the economy. But that’s not the major reason banks are holding out.

Banker being bankers are looking at possible future inflation. Why is this so important to a banker? Bankers have been burned so many times by government it just comes naturally. In the 60’s and early 70’s banks made low interest loans only to be burned by inflationary federal government and Federal Reserve policies that created inflation in the late 70’s and early 80’s. Bankers made 5% loans in 1973 only to see loan rates climb to 9% in 1974 then 18% in 1981. The inflation rate went from 3% to 15%. So if you’re a banker and you made that nice 5% loan for 30 years guess what? Eight years into the loan the inflation rate is 15% and you’re in the red. Your books are a disaster full of low interest loans and you either have to go out of business or make very high risk loans to recoup your massive losses. And this is what happened to many savings and loan companies that lead directly to the savings and loan disaster of the late 80’s and early 90’s. It was bad government fiscal and monetary policy leading to the destruction of hundreds of lending institutions and the loss of thousands of jobs. The government created the Resolution Trust Fund to clean up the mess it had created.

Then after the S&L mess was cleaned up we got the Community Reinvestment Act, Sarbanes-Oxley, Freddie Mae, Fannie Mac and political backstabbing. Banks were forced to make bad loans by the government to unworthy borrowers, Fannie and Freddie buy and sell toxic assets throughout the banking and financial system, AIG and other politically connected firms buy the toxic assets by the billions for political favors from Washington.

Bribes, payoffs, bonuses of every kind imaginable were made and the system crashed. Insiders on Wall Street demanded payback for the bogus paper coming out of Fannie and Freddie and then came the bail outs. Fraud and chaos once again perpetrated by the politicians in Washington. These robbers just cannot resist the temptation to screw with the banking system of America with their insane schemes. It’s like the crooks and mafia joined forces with the police and are ransacking every bank they can get to.

And now the final blow to bankers’ confidence. The Federal Reserve assisted by Congress pumps up the monetary base from $800 billion to $1,800 billion. Bankers being bankers are not the stupid twits all the Keynesians in congress think they are. They can read the Federal Reserve data. They can do the math. They are bankers. They passed business calculus and accounting in college unlike our idiots in Washington with their political science degrees of useless information. Would any sane banker make a loan at 5% if the inflation rate is going to be 15% in a couple of years? Gee let me think on that one Mr. Frank and Mr. Dodd. It’s really quite simple to clear thinking bankers and anyone else paying attention. Only blundering politicians and Keynesian economists who think they can pull a fast one over the dumb business bumpkins are fooled by this buffoonery.

So what is the real deal? Economics is part science and part psychological. Having a communist educated idiot in the White House and a bunch of thieves in congress is not the way to inspire confidence. What would I do?
Cut federal spending. The last thing the economy needs is more idiots spending taxpayer’s money. Privatize social security, eliminate all aid to seniors and cut them a check every month and let them deal with it. Billions and billions would be saved in useless bureaucracies and more importantly the money would go to the people. Get rid of the departments of education and housing. Complete and utter waste of money if there ever was one. All the money in the world isn’t going to make a dumb kid smart.

Take away the power of the Federal Reserve to set any kind of interest rate. Batting 500 in baseball is good but not when it comes to banking. Leave the banks alone to charge what they want to for interest rates. As a safeguard pass an act similar to Glass-Segal limiting banks to no more than 5% market share in the United States. Not needed but it will make the monopoly conspiracy theory people happy. It’s past time to strip the Federal Reserve of its power over interest rates.
Cut the corporate and capital gains taxes to 25% and 10%. Sending a signal that comrade Obama is not going to pull a Chairman Mao would be a nice gesture to the folks who actually work for a living.

Better yet get a flat income tax and get rid of all other federal taxes including tariffs, corporate and capital gains. Do that and the boom will last a decade or more. Everyone who wants a job will have one. Private markets and employers actually work for a living. Government is nothing more than a thief or at best a referee.

And that is the fundamental differences in economist. The demand side Keynesians believe they are superior and resort to government power and money to bully people and businesses around. Their policies lead to disaster time and time again. Fascist, socialist and communist are drawn to the economics of Carl Marx and John Maynard Keynes.
The supply side Milton Freidman types believe in free markets and little government interference. Adam Smith in his book Wealth of Nations back in 1776 pretty much captured the magic of free enterprise 223 years ago. Nothing really has changed much. Nations that pursue free economic systems prosper and those that don’t get poor. It’s not complex.
People claim Wall Street greed brought down the house of cards. Nothing could be further from the truth. Washington’s constant meddling in the banking system decade after decade brought it all crashing down. Why the banks? Well because as Willie Sutton said “that’s where the money is.”

And what is in it for politicians in the long run to destroy the economic system of its country? Besides the obvious political power and pay offs where will all this lead? Inflation will destroy elderly independence and wipe out the middle and upper middle classes. Obama wants a classless society. Inflation is the quickest way to get there.
Socialized medicine will lead to rationing. Who will control the rationing? Government. Favored political groups like minorities and gays will get preferential treatment as they do now with so many government programs. The elderly reduced to poverty by inflation will see the most severe rationing. No money no power. Dictatorship. Just as Roosevelt and Keynes enjoyed during the height of WWII.

And the ironic thing is the people will praise Obama just like they did Roosevelt when it’s all over. I guess it would be similar to John McCain praising his torturers for quitting the torture. It sure does feel good when they quit breaking your arms doesn’t it John?

And there you have it Mr. Beck and Raiford. I strongly urge you to read up on libertarian principals and economics. Freidman, Smith, CATO, Heritage and the Libertarian Party are and always will be sources of inspiration. Tomas Payne in his Common Sense pamphlets need to be reprinted and distributed to all freedom loving Americans.

The world is a different place than it was in 1929. Information passes quickly to the masses. If I and millions can see for ourselves what is happening to the monetary base there is hope. We can remove the tyrants from power. As Mr. Beck states this isn’t a Republican or Democratic thing. Both political parties are moving in the same direction, total power. They are fighting over the spoils of power not differing principals. Both parties need to be removed from power and social engineering needs to be put at the state and local level where it belongs.

If Mr. Beck or Raiford read this insipid little blog I hope it helps. Don’t Tread on Me.